According to the federal Fair Labor Standards Act (FLSA), non-exempt employees must be paid overtime at time and a half their regular rate of pay for any hours worked in excess of 40 hours per week. The regular rate of pay cannot be less than the federal minimum wage. This is the federal law and the state law that applies for the payment of overtime could be different. For example, in California overtime is paid on hours worked in excess of 8 hours in any single work day. It is therefore important to check the overtime law that applies in your state. For more information, see http://stateovertimelaw.us.
In order to calculate the overtime premium, it is first necessary to determine the employee’s regular rate of pay on an hourly basis. This is based on the employee’s total remuneration for employment, and includes payments made to the employee or on behalf of the employee. Once the employee’s total remuneration for employment in any workweek is determined, the regular hourly rate of pay is calculated by dividing the employee’s total remuneration for that workweek by the total number of hours actually worked in that workweek.
Regular Rate of Pay
The employee’s remuneration can be determined on a piece-rate, salary, commission, or other basis, but in all cases overtime pay must be calculated based on an average hourly rate derived from the total remuneration. The regular rate of pay is not limited to the employee’s standard wage or salary. It may also include supplemental payments such as shift pay, bonuses, and commissions. It may also include the fair market value of goods the employees receives as remuneration or the value of facilities the employee is entitled to use, such as housing.
The amounts specifically excluded from total remuneration for purposes of calculating overtime pay include gifts, payments for time off (such as vacation, holidays, sick leave, etc.), business expenses reimbursed to employees, recruitment and relocation bonuses, cash incentive awards, retirement plan payments (such as matching amounts for a 401(k) plan), discretionary bonuses, clothing and uniform allowances, and remote worksite allowances.
Hourly Wage
In a simple example, if an employee’s total remuneration consists of an hourly wage of $8.00 an hour, and the employee works 48 hours in a week, the 8 overtime hours would be paid at a rate of $12.00 ($8.00 x 1.5). The employee would therefore be paid regular wages of $320.00 ($8.00 x 40 hrs.) plus overtime of $96.00 ($12.00 x 8 hrs.) for a total of $416.00.
Hourly Wage Plus Shift Pay and Bonus
Shift pay and bonuses must be added to hourly wages in determining the regular pay rate for purposes of calculating the overtime premium. For example, if an employee is paid an hourly wage of $9.00 an hour, shift pay of $150 a week and an annual bonus of $1,000, and the employee works 50 hours in a week, regular earnings for the workweek would be hourly wages of $450.00 ($9.00 x 50 hrs.) plus shift pay of $150 plus the prorated weekly portion of the annual bonus of $19.23 ($1,000 / 52 weeks), for a total of $619.23.
The overtime premium would be calculated as regular weekly earnings of $619.23 divided by 50 hours worked = $12.38 x 0.5 = $6.19. The total premium on the 10 overtime hours would therefore be $61.90 ($6.19 x 10 hrs.). The employee’s total cash remuneration for the week would be $450.00 for hourly wages at the regular rate, plus shift pay of $150, plus the overtime premium of $61.90, for a total of $661.90, assuming the bonus is paid once a year and is not spread out over the year.
More Than One Straight-Time Rate
When an employee has two or more different types of work, at different straight-time rates, in a given workweek, the regular rate for that week is the weighted average of the individual rates. You would add together all the earnings from all types of work and divide by the total number of hours worked at all jobs.
For example, if an employee works 24 hours at one type of work that pays an hourly rate of $7.50 and works 30 hours that same week at another type of work that pays $9.00 an hour, the employee’s total regular earnings for the week would be $180.00 ($7.50 x 24 hrs.) plus $270.00 ($9.00 x 30 hrs.) for a total of $450.00. Her weighted average regular hourly pay would be $8.33 ($450.00 / 54 hrs.). The overtime premium on the 14 overtime hours would be $58.31 ($8.33 x 0.5 = $4.165 x 14 hrs.).
Under certain circumstances, you may be able to calculate overtime pay based on one and one-half times the hourly rate for the specific job the employee was doing when overtime hours were worked.
Non-Cash Remuneration
When part of an employee’s remuneration is paid in the form of goods or the right to use facilities, the reasonable cost to the employer or the fair value of those goods or facilities must be included in the regular rate. For example, if an employee is provided housing with a fair market value of $300 per month, the regular rate for calculating overtime would have to include the value of the housing. You can annualize monthly amounts and divide by 52 to determine the weekly amount ($300 x 12 = $3,600 / 52 = $69.23 in this case).
In this case, if the employee is paid an hourly wage of $8.00 and works 48 hours in a week his regular earnings for purposes of calculating overtime would be his regular wages ($8.00 x 48 hrs. = $384.00) plus the value of the housing ($69.23) for a total of $453.23. The overtime hours would be paid with a premium of $4.72 ($453.23 / 48 hrs. = $9.44 x 0.5 = $4.72).
The employee’s total cash remuneration for the 48 hours would be his regular wages of $384.00 (48 hrs. x $8.00) plus the overtime premium of $37.76 (8 hrs. x $4.72) for a total of $421.76. This is the amount that would appear on his paycheck. His total taxable remuneration for the week would be his cash wages and overtime of $421.76 plus the prorated housing value of $69.23 for a total of $490.99.
Salary
Exempt employees who are paid a salary generally do not receive overtime pay. But a non-exempt employee would be entitled to overtime, even when she is paid a salary. In this case, the regular rate of pay is calculated by dividing the salary by the number of hours the salary is intended to pay. If the employee receives a weekly salary and works a different number of hours in different weeks, the regular rate of pay, and therefore the overtime premium would be different each week.
For example, if the employee is paid $500 a week and works 50 hours, the regular rate of pay that week is $10 per hour. The 10 overtime hours would be paid with a premium of $5 per hour (half the regular rate), so the employee should be paid $550 for that week (regular salary of $500 plus $50 for the overtime premium). If the employee works 45 hours the following week, the regular rate of pay would be $11.11 ($500 weekly salary / 45 hrs. worked). The overtime premium would be $5.56 (half of $11.11), so the employee should be paid her regular salary of $500 plus an overtime premium of $27.80 (5 hrs. x $5.56) for a total of $527.80 for the week.
A semi-monthly or monthly salary would have to be converted to a weekly amount in order to calculate the regular rate of pay per week. A semi-monthly salary would be multiplied by 24 and the product divided by 52 weeks to get the weekly salary equivalent. A monthly salary would be multiplied by 12 and the product divided by 52 weeks.
Piecework
When an employee is paid on a piecework basis, the regular rate of pay is calculated by dividing the total weekly earnings by the total number of hours worked that week. The employee is entitled to overtime pay with a premium of one-half the regular rate for each hour worked in excess of 40 hours for the week.
For example, if an employee who is paid on a piecework basis works 48 hours in a week and earns $384, the regular rate of pay for that week is $8.00 an hour ($384 / 48 hrs.). The employee should also receive an additional $4.00 an hour (half the regular rate) for each hour worked over 40 hours per week. The employee’s pay for that week would be her regular pay of $384 plus an overtime premium of $32 ($4.00 x 8 hrs.), for a total of $416.
If there is an agreement before the work is performed, overtime can be paid to pieceworkers at one and a half times the piece rate for each piece produced during overtime hours, provided it is more than the minimum wage.
40 Hours per Week
For federal labor law purposes, the workweek is the basic unit of time used for determining whether an employee should be paid overtime. A workweek is defined as a fixed and regularly recurring period of 168 hours, consisting of seven consecutive 24-hour periods. The workweek does not have to coincide with a calendar week and can begin on any day and at any hour of the day. It is not necessary for all employees to have the same workweek, but once the workweek has been established for an employee, it cannot be changed.
It should be noted that overtime pay is calculated based on a workweek, which is not necessarily the same as the pay period. When an employer has a biweekly pay period, overtime is not the hours in excess of 80 for the pay period. Each week stands on its own. Semi-monthly and monthly payrolls must be converted to workweeks for purposes of calculating overtime.
Hours worked generally include all time that an employee must be on duty or on the employer’s premises, or at any other prescribed place of work, and also include any additional hours the employee is allowed or permitted to work. Overtime pay is due on the regularly scheduled payday for the period in which it was earned.
Reference:
- EmployeeIssues.com – Overtime Pay: employeeissues.com
